diff --git a/Project.toml b/Project.toml
index 8a146db26..b8139c3d0 100644
--- a/Project.toml
+++ b/Project.toml
@@ -1,6 +1,6 @@
 name = "ModelPredictiveControl"
 uuid = "61f9bdb8-6ae4-484a-811f-bbf86720c31c"
-version = "2.14.0"
+version = "2.14.1"
 authors = ["Francis Gagnon"]
 
 [deps]
diff --git a/src/estimator/mhe/construct.jl b/src/estimator/mhe/construct.jl
index b0ade0423..68d8fee40 100644
--- a/src/estimator/mhe/construct.jl
+++ b/src/estimator/mhe/construct.jl
@@ -662,8 +662,11 @@ function default_covestim_mhe(model::SimModel, i_ym, nint_u, nint_ym, P̂_0, Q̂
     elseif model isa NonLinModel
         return UnscentedKalmanFilter(model,  i_ym, nint_u, nint_ym, P̂_0, Q̂, R̂; direct)
     else
+        # SteadyKalmanFilter with arbitrary LinModel (will be ignored):
         nx, nu, ny = model.nx, model.nu, model.ny
-        A, Bu, C = 0.1*I(nx), ones(nx, nu), ones(ny, nx)
+        poles = nx > 1 ? range(0.1, 0.9, length=nx) : [0.5]
+        A = Diagonal(poles) # distinct and stable poles for observability
+        Bu, C = ones(nx, nu), ones(ny, nx)
         dummy_model = LinModel(A, Bu, C, 0, 0, model.Ts)
         return SteadyKalmanFilter(dummy_model, i_ym, nint_u, nint_ym, Q̂, R̂; direct)
     end
diff --git a/test/2_test_state_estim.jl b/test/2_test_state_estim.jl
index d17376c63..03363df08 100644
--- a/test/2_test_state_estim.jl
+++ b/test/2_test_state_estim.jl
@@ -1059,6 +1059,11 @@ end
     mhe2 = MovingHorizonEstimator(dae; He=3, transcription, direct=false)
     @test mhe2.direct == false
 
+    mhe_skf = MovingHorizonEstimator(dae; He=3, nint_ym=0, nint_u=0, σP_0 = [0.5]) 
+    @test mhe_skf.cov.P̂_0 ≈ [0.5^2]
+    @test mhe_skf.cov.invP̄ ≈ [1/(0.5^2)]
+    @test mhe_skf.P̂arr_old ≈ [0.5^2]
+
     @test_throws ArgumentError MovingHorizonEstimator(dae, He=3, transcription=SingleShooting())
     @test_throws ArgumentError MovingHorizonEstimator(dae, He=3, transcription=MultipleShooting())
 end